Question

Suppose that the U.S. has a comparative advantage in the production of spreadsheet software. As a result of opening up the market to international trade,

a.
​U.S. citizens benefit from lower software prices, increasing consumer surplus in the market.

b.
​U.S. producers benefit from higher software prices, increasing producer surplus in the market.

c.
​U.S. software producers are harmed, since the price that these producers receive will decline as the price falls to the world price.

d.
​total surplus in this market will remain unchanged, as the decline in benefits received by software producers exactly balances the increase in benefits received by US software consumers.

Answer 1

The correct answer is option b.

Step-by-step explanation:

Comparative advantage refers to the situation where an individual, firm or nation can produce a good or service at a relatively lower opportunity cost.

If the US has a comparative advantage in the production of spreadsheet software it means that the US can produce it at a lower opportunity cost.

The US specializes in the production of spreadsheet software, so with the opening up of trade, it will be benefited from a higher price. Since the other countries can produce at a higher opportunity cost, the world price must be higher.

As a result, the producer surplus in the US market will increase.